Comments due by Feb 12, 2016
Until recently, the usual thinking among macroeconomists has been that short-term weather fluctuations don’t matter much for economic activity. Construction hiring may be stronger than usual in a March when the weather is unseasonably mild, but there will be payback in April and May. If heavy rains discourage people from shopping in August, they will just spend more in September.
But recent economic research, bolstered by an exceptionally strong El Niño – a complex global climactic event marked by exceptionally warm Pacific Ocean water off the coast of Ecuador and Peru – has prompted a rethink of this view.
Extreme weather certainly throws a ringer into key short-term macroeconomic statistics. It can add or subtract 100,000 jobs to monthly US employment, the single most-watched economic statistic in the world, and generally thought to be one of the most accurate. The impact of El Niño-related weather events like the one this year (known more precisely as “El Niño Southern Oscillation” events) can be especially large because of their global reach.
Recent research from the International Monetary Fund suggests that countries such as Australia, India, Indonesia, Japan, and South Africa suffer adversely in El Niño years (often due to droughts), whereas some regions, including the United States, Canada, and Europe, can benefit. California, for example, which has been experiencing years of severe drought, is finally getting rain. Generally, but not always, El Niño events tend to be inflationary, in part because low crop yields lead to higher prices.
After two crazy winters in Boston, where I live, it would be hard to convince people that weather doesn’t matter. Last year, the city experienced the largest snow accumulation on record. Eventually, there was no longer any place to put it: four-lane highways narrowed to two lanes, and two-lane roads to one. Roofs collapsed and “ice dams” building up from gutters caused severe flooding. Public transport closed, and many people couldn’t get to their jobs. It was a slow-motion natural catastrophe that lasted for months.
The US as a whole did not have a winter as extreme as New England’s in the first part of 2015, and the effects of the weather on the country’s overall economy were subdued. True, New York City had some significant snowfalls; but no one would have paid much attention had the mayor been more competent in getting the streets plowed. Eastern Canada suffered much more, with severe winter weather playing a role (along with lower commodity prices) in the country’s mini-recession in the first half of the year.
This year’s winter is the polar opposite of last year’s. It was 68º Fahrenheit (20º Celsius) at Boston’s Logan Airport the day before Christmas, and the first speck of snow didn’t come until just before New Year’s Day. Trees and plants, sensing spring, started to blossom; birds were just as confused.
Last winter Boston was something of an anomaly. This year, thanks in part to El Niño, weird weather is the new normal. From Russia to Switzerland, temperatures have been elevated by 4-5º Celsius, and the weather patterns look set to remain highly unusual in 2016.
The effect on developing countries is of particular concern, because many are already reeling from the negative impact of China’s slowdown on commodity prices, and because drought conditions could lead to severe crop shortfalls. The last severe El Niño, in 1997-1998, which some called the “El Niño of the Century,” represented a huge setback for many developing countries.
The economic effects of El Niño events are almost as complex as the underlying weather phenomenon itself and therefore are difficult to predict. When we look back on 2016, however, it is quite possible that El Niño will be regarded as one of the major drivers of economic performance in many key countries, with Zimbabwe and South Africa facing drought and food crises, and Indonesia struggling with forest fires. In the American Midwest, there has lately been massive flooding.
There is a long history of weather having a profound impact on civil strife as well. Economist Emily Oster has argued that the biggest spikes in witch burnings in the Middle Ages, in which hundreds of thousands (mostly women) were killed, came during periods of economic deprivation and apparently weather-related food shortages. Some have traced the roots of the civil war in Syria to droughts that led to severe crop failure and forced a mass inflow of farmers to the cities.
On a more mundane level (but highly consequential economically), the warm weather in the US may very well cloud the job numbers the Federal Reserve uses in deciding when to raise interest rates. It is true that employment data are already seasonally adjusted to allow for normal weather differences in temperate zones; construction is always higher during spring than winter. But standard seasonal adjustments do not account for major weather deviations.
Overall, the evidence from past El Niños suggests that the current massive one is likely to leave a significant footprint on global growth, helping support economic recovery in the US and Europe, while putting even more pressure on already weak emerging markets. It is not yet global warming, but it is already a very significant event economically – and perhaps just a taste of what is to come.(Project Syndicate)
El nino has certainly impacted the US economy in recent months, the mild winter and unusually high temperatures in late 2015. I think a very good point discussed was the impact on the jobs numbers this weather phenomenon will have in regards to the Federal Reserves decision to raise interest rates. Earlier this week Stanley Fischer, Vice Chairmen of the board of Governors at the Fed, gave vague insight into the FOMC's rate hike schedule this year. However he echoed the point that they are closely watching the health of the US economy and supporting data before making any decision. The warm weather has brought with it many rains that have helped reduce the drought stricken areas in the US, which I believe will lead to a higher crop harvest and increased number of seasonal workers. That being said in areas like South Africa and Zimbabwe where a drought can be deadly echoes the point of how emerging markets are suffering much greater costs. With the turmoil of emerging markets, investor dollars are going to flee from these economies and into safer bets, like the US treasuries. We have seen the yields among these treasury securities decline over the past few months which displays the fact that this could already be happening. El nino just may have come at the worst time, Japan and some European nations have set negative interest rates in an effort to encourage lending. The intermediaries who are holding a higher than usual cash balance sends a signal that lenders are finding it harder to find safe or prime borrowers. With the financial crisis still in their minds I think forcing their hand will be a mistake because the global economy is not stable enough.
ReplyDeleteWeather has always been an important consideration in any fluctuations in the global economy. Analysis has always taken to account these seasonal weather patterns, for example last year when consumer spending declined due to harsh winter conditions. This contributed to economic lags, as consumer spending increased naturally due to warmer weather. However, some weather events such as El Niño are a deviation from normal seasonal trends that are accounted for during the Fed's seasonal adjustments. It thus becomes crucial to understand its implications on how its weather effects propagate into the economic infrastructure in a given economy.
ReplyDeleteA particularly interesting facet of isolated, abnormal weather conditions such as El Niño is how inherently unbalanced it is. That is, the degree of its effects ultimately result in global economic variances. For example, while the warm temperatures correlate with higher, "warmer" economic activity, it may adversely affect other economies. Emerging economies can be affected by outperformance from peer nations but are restricted to the degree of economic activity due to a weather pattern.
Politicians, especially considering this year's upcoming elections, often contribute to the dialogue between climate change, or the lack thereof. They should be wary, regardless of their partisan leanings, that economic climate changes with the weather as well.
Jack Salisbury - ECO-360 - Js80502n@pace.edu
ReplyDeleteThe effect of El Nino years, especially this one, is interesting in regards to different world markets. Normally, it is extreme cold weather that can have an adverse effect on the U.S economy, not unusually warm ones like the one we are currently experiencing. For example, the Federal Reserve noted in their ‘beige book’ report last year that the extreme weather resulted in consumer spending to be down across the U.S and that “manufacturing and construction were also adversely affected. Weather was also cited as a contributing factor to softer auto sales in many areas.” Since the Federal Reserve routinely takes the effect of weather into account, it is unsurprising, but none the less interesting, that this weather will influence the timing and perhaps substance of announcing a raise in interest rates.
Something I’ve noticed in my own life that directly relates to this phenomenon, is the laying off of seasonal workers. The ski resort in Killington, VT, where I work over break as a coach, has been forced into laying off nearly 80% of their seasonal staff this winter due to the unusually high temperatures. This is a reality that the industry as a whole is being forced to deal with and could potentially have debilitating financial consequences if this sort of weather continues for years to come.
Emerging markets, though, must feel the fallout from El Nino related setbacks more than anywhere else. I would imagine that the most pressing fear is that those investing in these emerging markets may choose to cut their losses and re-invest in safer alternatives, based on fear this weather and resulting economic fallout may continue. Most people will be hoping that this weather will be considered an outlier and not the norm moving forward; Though, unfortunately, it has come during quite a tense time with China’s commodity markets slowing down and European nations making a concerted effort to increase lending and spending.
Sunhao Fu-ECO 360
ReplyDeleteLike EI Nino this kind of climate event always results in the damaged weather disaster, and also has impacts on energy resources, transportation, water conservancy, construction, retailing, tourism, insurance and medical treatment. All these factors are able to affect the economy all around the world. However, EI Nino has the directly effects on agriculture industry. The abnormal climate influence the price of and the amount of imports and exports of agricultural products.
EI Nino mainly reduces the production amount of rice, wheat and corn, however, different countries has different amount changing. According to an article I read, in China, the production amount of corn would be decreased by around 5%, compared to the normal year. As a result, the price could be increased due to the decreased supply of agricultural products, thus the investors are possibly dumpling their gold in order to gain the daily food. What's more, because the supply of gold exceeds the demand of gold, and the demand of gold is going down, the price oa gold would be declined.
As for the tropical zones' countries, for example India, people perhaps are going to buy some medicine which could be clearing summer-heat, and something for cooling. The demand for these things will be going up, leading the price to go up either.
El nino has serious impacted to the United States economy recently . In the previous economic activity. If people shop less due to the impact of weather in August, they will spend more during the September time. However. The recent economic research of El nini has showed that extreme weather is able to cause serious impact to the short term macroeconomic statistics. The US employment can easily add or subtract 100,00 jobs monthly. El Nino especially causes suffers and droughts to Australia , Indonesia, Japan and South Africa and India . On the other hand, those countries that have been suffering serious droughts finally get rain such as California. This extreme weather causes those countries that have low crop yield lead to higher prices. The winter in Boston is one of the best example to prove how extreme weather affect the whole city. The city experienced the largest snow accumulation last year. the roofs were collapsed and “ ice dams that built up from gutters caused extreme flooding. All of the public transport were closed which caused inconvenience and difficulties for citizens to get to their jobs.
ReplyDeleteExtreme weather fluctuations have long-term effects on the global economy and alter macroeconomic statistics. Most significantly, El Niño, an irregularly occurring series of climatic changes that brings unusually warm weather and poor quality water in late December, causes a substantial shift in the global economy. When one region operates differently or lacks in production, it affects other regions as well as international trade in the global economy. For example, the mild and above average temperatures in December throughout the United States have negatively impacted the natural gas industry, as the United States is the largest natural gas consumer. As the United States decreases the demand for natural gas, the countries we consume from will suffer economically.
ReplyDeleteFor example, I have friends in California who have experienced a long period of drought. Since El Nino has brought a sufficient amount of rain to the region, Californians have seen great economic impacts such as reallocation of money from water conservation efforts to creation of new technology.
El Nino has and will continue to leave a huge economic impression globally, whether it is helping already strong economies or hurting newly emerging markets. El Nino is a glimpse of what could be if global warming is not addressed. For years to follow, rising temperatures and abnormal weather patterns will continue to affect domestic economies and in turn, disrupt global economies.
The drastically different weather pattern worldwide, caused by the El Nino, has already caused economic downturn in the last year and will continue into 2016. While these major issues are apparent in the short-term macroeconomic scale, such as the US employment rate, these major weather changes are bound to effect the long-term macroeconomic activity. The current El Nino is an indication of a major global footprint and yet global climate change has yet to wreck havoc on global economic activity. The long term and short term microeconomic activity worldwide will have a taste to what may be the inevitable future of factoring global climate conditions into economic activity and reform. With this El Nino it is mandatory that economists adjust their thinking in not only the short term and further into the future of global climate change.
ReplyDeleteSevere storms such as El Nino do affect the economy on a long term basis, as described in this article that the loss in crops does inflate prices that cause sales to drop since customers may look to make a change to their usual purchases to avoid that extra cost. Although these sever storms that are continuously warned about over the media have the aim of making people panic, causing them to go out and buy all that they can, and possibly even things they will never need. This short term increase in sales does wonders to the economy, stimulating the national GDP to increase, just like the 90's El Nino that caused GDP to rise between 0.2 and 0.5 percent. It's the domino affect that comes with the damage of property, damage to farm land and government property that may cause a long term economic downfall as some businesses may struggle to afford the storm repairs forcing them to let go of some employees, or stores who lose a large amount of their customers because prices have had to go up. Surprisingly an Eastern Economic Journal writer; David D. Selover stated after reviewing the economic impact of the 97-98 El Nino impact that the economic losses were offset because of the positive economic impact as the storm caused approx. $4 billion in damage but generated $19 billion in benefits to the U.S economy. So this is definitely possible to any other major storms that may hit first world countries, but unfortunately not undeveloped countries such as Malaysia who saw nothing but loss after such storms.
ReplyDeleteWhen El Niño conditions keep going for a long time, broad sea warming and the lessening in easterly exchange winds limits upwelling of frosty supplement rich profound water, and its financial effect to neighborhood looking for a global business sector can be not kidding.
ReplyDeleteAll the more for the most part, El Niño can influence thing costs and the macroeconomy of various nations. It can compel the supply of downpour driven horticultural items; decrease farming yield, development, and administrations exercises; make sustenance cost and summed up swelling; and might trigger social turmoil in merchandise subordinate poor nations that essentially depend on imported nourishment. A University of Cambridge Working Paper demonstrates that while Australia, Chile, Indonesia, India, Japan, New Zealand and South Africa confront a brief fall in financial movement in light of an El Niño stun, different nations might really profit by an El Niño climate stun (either straightforwardly or in a roundabout way through positive overflows from real exchanging accomplices), for occurrence, Argentina, Canada, Mexico and the United States. Moreover, most nations experience short-run inflationary weights taking after an El Niño stun, while worldwide vitality and non-fuel item costs increment. The IMF evaluates a critical El Niño can support the GDP of the United States by around 0.5% (because of lower warming bills) and diminish the GDP of Indonesia by around 1.0%.
Severe storms undoubtedly have a major affect on the economy. Personally, I have relatives also from the Boston area and the snowstorm last year showed no signs of letting up for them. My relatives also said that it was like the entire town was moving in slow motion, there was nowhere to move within the town, and the roads were not even worth driving on. A storm like this occurring in a developing nation could be catastrophic especially during tough economic times when families are already suffering. Food would become a premium and there could be major inflationary consequences on basic goods needed to survive. This would create a huge setback for an extended period of time that an emerging market could not afford to have. Funds would be allocated to emergency relief instead of developing infrastructures for example, and the larger the population, more spending would occur on relief efforts. That being said, there is definitely time afterwards for a boost in the economy for all of the recovery that would happen. The service industry would see a huge gain, food stores would get a boost in customers once people are able to leave their homes, and overall the economy would see a beneficial gain afterward.
ReplyDeleteWhen thinking about how weather affects the economy, its hard to forget about the recent "blizzard" in early 2015 that led to New York Governor Andrew Cuomo essentially shutting down the entire city in response to forecasts of historical proportions from meteorologists suggesting that New York City would receive two to three feet of snow. Instead, at its highest points, the snow topped off at about 8 inches. The economic impact of this shutdown, however, is what is truly of interest. It was estimated by several independent economists and firms that the New York City shutdown ended up costing the city between $500 million and $1 billion dollars in lost productivity. And this was just over the course of a single day.
ReplyDeleteIn the case of El Nino, which has a far-reaching global impact that lasts for months, the economic impact is vastly more substantial. Thankfully, there is a silver lining for the United States, where El Nino essentially warmed the entire country and resulted in rainfall in drought-stricken areas. Domestically, there is a distinct possibility that we could have benefited economically from the wild weather patterns that we had experienced. The warmer winter we've been experiencing could lead to higher yields of seasonal crops, and subsequently, seasonal employment (at least in the farming sector). At the same time, California is finally getting rain, which is even more good news for farmers. Additionally, the warmer winter has led to millions of Americans each saving thousands of dollars on heating costs. This extra cash could be used to purchase more consumer products, and thus re-injected into the economy. However, these are short-term benefits and are largely unique to the United States and surrounding area. In the long term, El Nino may actually harm springtime crop yields if it leads to colder weather later than usual. We've already seen the effect of this in some plants that started blooming early in reaction to warm winter weather. Furthermore, consumer spending may decrease in certain industries. For example, winter apparel manufacturers and retailers have suffered, along with heating companies who have lost revenue due to unusual temperatures. Also, other countries are suffering--particularly developing countries with fragile economies. It will certainly be interesting to see how the future will pan out given the impact of El Nino, and if any beneficial or harmful impacts will be long lasting or simply temporary.
El Niño is a global climatic event that’s been influencing our environment with catastrophic natural disasters and therefore influencing our economy. Flooding in Peru, droughts in Africa and Australia, are all caused by el Niño’s devastating effect. In the U.S. el Niño, caused by warmer oceans on the Pacific side causes strong rainfalls and floods on the Southern United States and warmer conditions on the Northern side, especially Northern Pacific.
ReplyDeleteFood production, and water supplies become an enigma when under the influence of such climatic events. This doesn’t only affect our environment but our economy as well. Extreme weather alters the production of agricultural goods. Deficit or surplus of production influences the market. For example warmer weather in the U.S. brings a higher crop yield that will drive down the crop prices.
Another way the economy is affected by el Niño is consumer spending. People generally spend more during the warmer seasons compared to the cold ones; a long cold winter would decrease consumer spending. The influence of these anomalies are studied and predicted in order for the Fed to properly adjust its inflation rate accordingly.
Nevertheless the highest toll of el Niño rests on the developing countries. Not only are they technologically, economically and structurally unprepared to sustain such environmental damages, but furthermore a developing country at risk of environmental catastrophes is not considered a safe investment, driving down foreign financing.
I think this writing highlighted very important aspects. me being a public accounting major, economics wasn't where I placed my focus academically, so the article was very enlightening. I agree that from an economic standpoint, El Nino and similar global instances, can create dramatic changes in not only the typical weather patterns, but in the composition of the landscape, which creates a bigger and longer term effect on the sustainability of necessary productivity like crops and agriculture.
ReplyDeleteTo further look at another economic impact on day-to-day business, El nino also created instances where people were not necessarily receiving help from the tax perspective for rare and unusual disasters in a lot of places. that lack of help in a time of financial need can in fact make it difficult for a business to survive. For some businesses as pointed out, it is expected that there will be irreparable damage accounted for, which will be adjusted for economically when the reserve is calculating the national interest rate, however, it doesn't account for things such as businesses, who in the normal course of business, deal with bad weather, but was even then still, dealing with weather which was highly unusual even for them. what happens when the item is highly unusually, infrequent or uncommon, but falls in line with the typical occurrence, from which your business is expected to account for typically? you take a big hit.
Thank you for the insightful reading.
El Nino has a huge impact on the economy and the weather all around the world. What caught my eye the most was the climate change. I found it really interesting when it mentioned that the International Monetary Fund suggests that countries such as Australia, India, Indonesia, Japan, and South Africa suffer adversely in El Nino years, often due to droughts. All of these countries are vulnerable for natural disasters. The country of Bangladesh which borders India is a prime example of this. Climate change has become a serious issue here and has intensified the climate events. Droughts is the most severe natural hazards in Northern Bangladesh. This causes many to migrate to Southern Bangladesh. Unfortunately, for Bangladesh droughts are recurrent features. Thus, affect of plant growth, loss of crop production, food shortages, and starvation. On the contrary, Countries like the United States, Canada, and Europe are benefiting from el nino. According to the article, California has finally been getting rain after years of severe drought. Along with supporting economic recovery in the United States. All of these factors are leaving a significant mark on global growth.
ReplyDeleteBradley
ReplyDeleteWhen I was younger I always used to think about what the men that work at carwash do when it rains. Do they get paid a salary or by the hour? Do they have second jobs? How do they support their families? It's amazing how the weather can effect and individual person to such a great extent but it is even crazier that it can have massive influences on the global economy.
The effects of El Nino are seen globally from an unseasonably warm winter up north, now followed by wind chills to coastal flooding in the southern hemisphere. Different markets are effected both positively and negatively. In Peru, for example, freezing temperatures are destroying crops while providing an advantage to the fishing industry. The economy is extremely vulnerable to weather and it is scary to think what long term damage global warming could have on our financial systems.
The above post exhibits how it is possible for extreme weather, such as the El Nino, to throw off the global economy. Events such as the El Nino can add or take away 100,000 jobs. When reading this article, it becomes apparent that many rely on the good weather conditions in order for them to carry out their careers.
ReplyDeleteAlthough there are many negative effects of the harsh weather, such as the loss of jobs, there are also positive impacts that come from the global economy being impacted by weather such as El Nino. Extreme weather has benefited areas such as Zimbabwe, where the presence of El Nino has helped those living in the areas cope with the drought and flood crises. With all of these positive and negative aspects of extreme weather, one realizes how huge of a financial driver weather can be on the global economy.
Professor its interesting that you mentioned you thought about people who work at carwashes. I too thought about that coincidentally this morning, I passed one as I was driving and started thinking about how no one will be washing their cars in this cold and what happens in the snow to them
ReplyDeleteEl nino will most definitely impact the US economy. The drought in California and other areas have caused high inflation of crops leading to a negative result. We will see a much higher yield of crops this season allowing the market to get back to equilibrium. However, rhe more severe impact will be seen on the emerging markets. These countries are struggling to establish themselves as it is without adding this anomaly in the shift in whether. I found it very interesting that economist researched and have shown strong correlation of weather shifts and witch burnings. This is something I have never considered before but does make a lot sense. The emerging countries may show similar domestic issues causing their markets to fall.
Professor its interesting that you mentioned you thought about people who work at carwashes. I too thought about that coincidentally this morning, I passed one as I was driving and started thinking about how no one will be washing their cars in this cold and what happens in the snow to them
ReplyDeleteEl nino will most definitely impact the US economy. The drought in California and other areas have caused high inflation of crops leading to a negative result. We will see a much higher yield of crops this season allowing the market to get back to equilibrium. However, rhe more severe impact will be seen on the emerging markets. These countries are struggling to establish themselves as it is without adding this anomaly in the shift in whether. I found it very interesting that economist researched and have shown strong correlation of weather shifts and witch burnings. This is something I have never considered before but does make a lot sense. The emerging countries may show similar domestic issues causing their markets to fall.
This article is fascinating because I have never really thought about the implications that weather has on various economic factors. It makes a fantastic point about fluctuations in jobs; such as spikes in construction related occupations during warmer seasonal periods. This can have a significant impact on the Federal Reserve's decision to raise interest rates because it can cloud quantitative data. As the article states, data is already adjusted seasonally but not for major weather deviations. This El Nino, for instance, has the capability to cloud job statistics and thus, influence the Federal Reserve because of it. Overall, I think the article makes a great point in showing the relation our natural world has on macroeconomics.
ReplyDelete